Improving the Role of Eximbanks/ECAs in the OIC Member States
122
Maturity The entire period during which an export credit agency is at risk with respect to
a guarantee or loan (i.e., both the precredit period and the credit period). The
term usually arises in the context of medium- and long- term business and thus
normally is synonymous with horizon of risk.
Multisourcing Procurement of goods and services from a number of countries, typically for a
large project. The decision to multisource is usually a matter of commercial and
industrial considerations (e.g., seeking out the best or cheapest or most easily
available source of supply), but it can also be part of a policy of spreading risk.
Multisourcing has caused export credit agencies to take a closer look at easier
and more flexible cooperation arrangements, not only for covering and financing
foreign goods and services, but also for closer cooperation on coinsurance and
reinsurance arrangements.
OECD
Arrangement
Formally known as the Arrangement on Guidelines for Officially Supported
Export Credits, a framework of rules or "soft law" among participating members
of the Organization for Economic Cooperation and Development that seeks to
provide an institutional framework for an orderly export credit market involving
official intervention. The arrangement came into being in 1978 and was
originally called the Gentlemen's Agreement, then the Consensus, and later the
Guidelines. It has grown in importance, coverage, and scope since its early days.
The arrangement applies to all credits of over two years' duration issued by an
export credit agency based in a participating OECD member country. Its original
intention was to prevent an export credit subsidy war between OECD member
countries, for which their taxpayers would ultimately pay the price. To this end it
sets minimum rates of interest, called commercial interest reference rates, on
export credit facilities. It also sets minimum down payments (15 percent),
maximum lengths of credit (normally 8 or 10 years, depending on the buying
country), and standard repayment terms (equal half-yearly payments of
principal beginning not more than six months from the appropriate starting
point of credit). The arrangement also sets limits on local costs (normally 15
percent of the value of the contract) and rules on mixed credits (including their
grant elements and concessionality levels). It also sets minimum premium rates
for commercial and political risk cover. Some flexibility, subject to prior
notification of other OECD members, is now possible for project financings.
There are also provisions for derogation from the requirements of the
arrangement, subject to notification and reporting to other OECD members.
Open account,
open account
business
Trade finance business whereby goods are shipped and delivered and payment
is made on the basis of invoices, usually in cash. There are thus no bills of
exchange or promissory notes, and the exporter relies on the importer to pay in
accordance with the invoice or terms of the contract. Open account business is
thus most commonly used where seller and buyer have a good, long-standing
trading relationship. Export credit agencies are prepared to cover open account
business if they are content to underwrite the buyer.
Organization
for Economic
Cooperation
and
Development
(OECD)
An organization, with headquarters in Paris, of mostly high income countries
that provides their governments a setting in which to discuss, develop,
coordinate, and perfect their economic and social policies. These exchanges may
lead to agreements such as the Arrangement on Guidelines for Officially
Supported Export Credits (the OECD Arrangement).